Following up on our story on tax tips for physician practices, Gregory P. Bergethon -- a CPA as well as an attorney with the Sands Anderson firm in Richmond, Va. -- has some extra advice for Part B News readers on how to leverage bonus depreciation for their business tax deductions:
Physicians and Physician practices often fail to appreciate the benefits of properly depreciating assets. The Tax Cut and Jobs Act gave taxpayers (individuals and businesses) the huge benefit of increasing bonus depreciation from 50% to 100% of the acquisition cost for the years 2017 through 2022.
Bonus depreciation -- otherwise known as additional first year depreciation -- is the amount that can be deducted by a taxpayer for the acquisition of "qualified property". Qualified property must be a specific type, meet certain acquisition requirements (e.g. can be new or used), and the property must be placed in service in the year that depreciation is sought. Specific property types include property that has a MACRS recovery period of 20 years or less, software, certain leasehold improvements, and vehicles. [
See IRS for more on the topic.]
Bonus depreciation is often confused with a Section 179 expense. While both bonus depreciation and Section 179 expense allow a taxpayer to deduct in the first year certain costs, Section 179 limits the deduction to a specific dollar amount (in 2022 the amount is $1,080,000). Bonus depreciation has no limits. Another benefit is that bonus depreciation can create a net loss, while Section 179 is limited to taxable income.
(Note: In 2023, bonus depreciation decreases to 80% and continues to decrease through 2027 when bonus depreciation will be zero.)